Cheap and cheerful shoe retailer Shoe Zone (LSE: SHOE) hardly seems like a glamourous investment but just take a look at how the AIM-listed firm has performed over the last six months, compared to highly rated glamour stocks ASOS (LSE: ASC) and Boohoo.com (LSE: BOO):
Company |
6-month share price movt |
Boohoo.com |
-38% |
ASOS |
-12% |
Shoe Zone |
+36% |
Shoe Zone has just published its first full-year results since becoming a listed company, and the numbers make impressive reading.
The firm reported a 124% rise in adjusted pre-tax profit, and adjusted earnings per share (eps) rose by 160% to 18.0p, beating analysts expectations for earnings of 17.7p.
Shoe Zones net cash balance rose by 50%, to 9.1m, and the firm declared a maiden dividend of 3.6p per share, giving a prospective yield of 1.6% although this modest payout is expected to rise to 12.3p this year, giving a prospective 2015 yield of 5.3%.
Online isnt more profitable
Only 3.1% Shoe Zones sales were made online last year, but online revenues rose by 26%, and the firm is continuing to invest in its internet operations, alongside its 545 stores.
In any case, Shoe Zones results make it clear that online sales arent necessarily more profitable than high street sales: Shoe Zones operating margin of 6.7% is higher than those of ASOS (4.8%) and Boohoo (6.4%).
2015/16 outlook
Historical results are useful, but when considering growth stocks its important to look ahead. What is the City expecting from each of these firms over the next eighteen months or so?
Company |
2015/16 forecast eps growth |
2015/16 forecast P/E |
ASOS |
1% / 28% |
48.9 |
Boohoo.com |
18% / 34% |
20.2 |
Shoe Zone |
16.4% / not available |
11.3 |
Its clear that ASOS has got to deliver a serious amount of growth to justify its sky-high P/E. To be honest, I just dont think this is realistic: in my view, ASOS remains seriously overvalued.
Boohoo.com appears to have a more realistic valuation after last weeks 35% fall. This firm has solid profit margins and recently reported 25% sales growth for the final four months of 2014. I believe a forecast P/E of around 20 is reasonable, given that Boohoo is still in the fairly early stages of its growth cycle.
Remarkably, Shoe Zone trades on a forecast P/E of just 11.3 astoundingly cheap if it can deliver on forecasts for the year ahead. Current forecasts suggest earnings growth of more than 15%, and a dividend yield of more than 5%, at todays share price.
Given its low rating, even modest growth will feed through to Shoe Zones share price quite fast unlike ASOS and Boohoo, where considerable growth is already priced in.
Whatever your view, the violent swings weve seen in ASOS and Boohoo shares over the last six months make it clear that growth investing can be a risky but profitable business.
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Roland Head has no position in any shares mentioned. The Motley Fool UK owns shares of ASOS. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.